President Barack Obama announced on Monday a compromise with Republican congressional leaders to extend the Bush-era income tax rates for all taxpayers for two years, extend unemployment compensation for thirteen months, and cut payroll taxes for one year.

The agreement incorporates a new estate tax rate, tax breaks for individuals and businesses, and a fix for the alternative minimum tax.

Democrats had tried unsuccessfully to extend the Bush-era tax rates for all except high income taxpayers, and many expressed dismay with the deal agreed to by the president. If no agreement is reached by December 31, taxes will go up for all Americans.

The agreement also calls for temporary reinstatement of the estate tax rate of 35 percent for estates worth more than $5 million, considered by many to be a victory for Republicans. There is no estate tax for 2010, but under current law it would rise to 55 percent in 2011.

The payroll tax proposal will reduce the 6.2 percent Social Security payroll tax on all wage earners to 4.2 percent for one year. This proposal will give wage earners a tax break comparable to the Making Work Pay credit which is expiring.

The deal will expand the earned income tax credit and extend individual tax credits including:

tuition tax credits for some families

the refundable child care tax credit

the 15 percent tax rate on most capital gains and dividends

Businesses will get a two-year retroactive extension of the expired research and development credit and will be allowed to depreciate 100 percent of the cost of new equipment.

The Office of Management and Budget said it doesn’t yet have an estimated cost estimate for the package, spokeswoman Meg Reilly told Bloomberg.com.

“I know there are some people in my own party and in the other party who would rather prolong this battle, even if we can’t reach a compromise,” Obama said regarding the agreement on tax cuts and unemployment benefits. “But I’m not willing to let working families across this country become collateral damage for political warfare here in Washington.”